by Scott Meyer –
Beginning January 1, 2024, new rules go into effect that will add additional reporting obligations to most entities formed or registered to do business in the U.S.
What information has to be reported?
Under the recently passed Corporate Transparency Act (“CTA”), newly formed entities will be required to report significant personal information to the Financial Crimes Enforcement Network of the U.S. Treasury (FinCEN). Such personal information will include the names, dates of birth, current residential address, and copies of acceptable forms of ID for senior officers, any individuals who exercise control over an entity, owners of entities who control the appointment or removal of officers or a majority of boards of directors, and persons with substantial influence over important decisions such as the lease or sale of assets, entity structure, major expenditures, selection/termination of business lines or geographic focus, senior officer compensation schemes, significant contracts, and amendments of substantial governance documents.
In other words, just about everyone who owns or controls entities will have their information reported. This also includes those of us who file to create entities with a secretary of state on behalf of clients.
Oh, and just in case you think this is minor or insignificant reporting that can be ignored, any person who fails to report complete or updated information or willfully reports false information may be subject to significant monetary fines and imprisonment.
The reported information will be maintained in a federal database that, under certain circumstances, may be shared by state, federal, and foreign law enforcement, as well as certain financial institutions.
Which entities do these requirements apply to?
The reporting requirements of the CTA applies to most entities created by filing formation documentation with a state’s secretary of state, including LLCs and corporations. The Rule also applies to foreign entities registered to do business in the U.S. by filing documentation with a state’s secretary of state.
These reporting requirements do not apply to common law general partnerships, sole proprietorships, and certain trusts, highly regulated entities such as public companies, charitable organizations, certain investment advisers, and pooled investment funds, and large operating companies (i.e. companies employing over 20 employees on a full-time basis in the U.S. with over $5,000,000 in gross receipts or sales in U.S. tax returns and an operating presence at a physical office within the U.S. that the entity rents or owns).
Entities formed on or after January 1, 2024, must report the required information to FinCEN within 30 days of such formation and/or registration with a state’s secretary of state.
No “grandfather” clause – older entities must comply, too
And don’t think that just because you’ve had your entity for years or formed it before the start of 2024 you have nothing to worry about. Entities formed or registered with a state’s secretary of state before January 1, 2024, must report the required information to FinCEN by January 1, 2025.
How to avoid liability? Contact Scott Meyer at 469-916-7700 x115 or email him to discuss options. We’ll help you evaluate your status and determine what agreements need to be revised to compel investors, owners, and key personnel to provide updated information to your entity.
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About Scott A. Meyer
Scott Meyer focuses his practice on Corporate and Intellectual Property matters. His Corporate practice includes a broad spectrum of services including entity formation, business transactions, operational agreements and contracts, sales, acquisitions and mergers of businesses, corporate governance and employment matters.
His Intellectual Property practice includes trademark, licensing and various service agreements for corporations.Read more…